#112: Investing in Self-Storage during an Economy of Change
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Today’s guest, Jacob Vanderslice, is Principal at VanWest Partners, a Denver-based real estate investment firm focusing on the acquisition and management of self-storage centers and other opportunistic real estate throughout the United States. VanWest has established a track record with over $195mm in real estate assets. Jacob and his partners’ success is driven by a commitment to delivering an expertly executed, adaptable strategy with an institutional investment approach. Welcome to the show, Jacob!
In this episode, we’re discussing…
[1:40] His background and how he got into this
[3:49] How does he look at an area to invest in, doing feasibility studies?
[5:58] Different storage facilities depending on the market
[7:15] How do they compete with the big names out there?
[9:46] The investment return they have vs. single-family or multifamily
[11:44] About the RV storage revenue due to the COVID
[13:44] The advantage of the automation vs. trying to hire people and retain them
[16:38] About the storage fund, how to get involved in the self-storage
[17:05] How to use your IRA and invest in real estate
Resources from Jacob
VanWest Partners | LinkedIn | Jacob LinkedIn | Facebook | Instagram
+ Read the transcript
Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the Richard geek podcast. Where you here helping people find creative ways to build wealth and financial freedom. I'm Mike Stoller, and in this podcast, you'll hear from others who are already doing these things and learn how you can too.
All right, everybody. Welcome back to another episode of the richer geek. Today's guest is Jacob Vanderslice. He's the principal of Van West partners. It's a Denver based real estate investment firm focusing on the Acquisition Management of self-storage centers, and other different real estate investments throughout the United States. They've established track record, they have over $195 million in real estate assets. So, these guys have been successful. Jacob and his partners are driven by a commitment to deliver an expertly executed adaptable strategy. Welcome to show Jacob, how're you doing?
Jacob Venderslice I'm doing great. Thanks for having us on today. We appreciate it.
Mike Stohler
Yeah, so let's, you know, we're gonna be talking about some self storage, why that's still there, you know, some questions that our listeners may have about that. But before we get into it, tell us a little bit about yourself where you started, how you got into this?
Jacob Venderslice
Yeah, we've been in real estate full time for about 16 years now. We started off doing fix and flips. We've done a bunch of those all over the country, I got into commercial real estate in 13, and 14, doing adaptive reuse retail projects with multi tenant experience based retail users like breweries and yoga studios and restaurants. And then we got to self storage in 2015. And we had saved the asset class for a while, and we liked its history. And that is historically resistant to recessions and downturns. It's repeatable, predictable, scalable. So we started off with a number of ground up development projects here in Denver. And we expand into the Midwest and 16, specifically, the Milwaukee market, we got six deals out there, and then just kept buying deals in the Midwest and southeast. And as of today, we've got over 30 self storage facilities and 10 different states. And our primary objective lately has been to focus on acquiring existing facilities that are under managed with below market rates above market expense load, sometimes don't have a website, and really add value, add value first with capital improvements. And then secondly, with operational efficiencies.
So we're on our current Fund, which is closing, we're recording this here on the last day of November, we're closing our fund, middle of next month. And we'll launch fund three in January of next year. And in addition to that, we're going to be doing some self storage developments that probably won't kick off until q2 or q3, we're seeing opportunities to start building again, in various target markets. And those opportunities weren't there until kind of recently as rents have popped back up. And deals are harder to execute. So we'll be focusing on kind of higher dubare higher barrier to entry markets that are tough to entitle and tough to get built. But it's been a good business for us. And self storage has been our primary focus for over five years now.
Mike Stohler
So how do you compete with you know, first thing I think about in self storage is there's there's a lot of them? You know, but there's also on the other hand, a lot of people that need them. How do you look at do you do feasibility studies? How do you look at you know, just like around my house, there's seems to be a lot of self storage? How do you look at an area, you know, do you do feasibility studies? Or do you just look at the population to say, hey, you know, one out of four people need storage, you know, because their garage is already full, right?
Jacob Venderslice
Yeah, we do all the above. And one of the risks in self storage is supply and oversupply. Self Storage is very local supply sensitive. So we'll track supply ratios in the one three and five mile trade radius. Nationally, there's about eight square feet per capita of self storage. So markets can support higher supply ratios in that if their rents are lower. So for example, you might have a market that's in 15 square feet per capita, but rents are only 90 cents per foot per month. So that means that More of that population can afford to store versus say, in Seattle where rents might be $2.25 to 50 per foot per month, that market might be a little more sensitive to increase supply because not as many people can afford those kinds of rates. So we analyze supply ratios, existing rates, competitive rates, we look at seasonality. So the peaks and troughs of the storage leasing season might be very different, are very different for that matter in St. Milwaukee than they are in Pensacola, Florida. You have a much sharper seasonality curve in the Midwest when the bad weather comes and you do in the Florida Panhandle. So we'll we'll normalize that seasonality and kind of understand what the historic revenues have been in the summer and winter. And then, beyond all that, we look at just basic fundamentals we want we want markets with good population growth, good, good area meeting income. And just good. Just real estate, nuts and bolts.
Mike Stohler
And do you also look at you know, I see a lot of different type of storage facilities you have, you know, chain link, do you have the wall down just regular storage, you have the end closed? The air conditioning? Are you seeing that one is more popular than the other in the different locations and is the AC air conditioning units give you that much more of a bang for your buck as
Jacob Venderslice they do it depends on the market. And we'd be on all types of deals, we have infill multi story climate controlled facilities that are elevator access, and very dense locations. And we have more suburban single story traditional drive but facilities that are not climate controlled. And we have mixtures too, we have some single story driving facilities that have a climate control component and a non climate control component. That's all kind of market dependent. And generally speaking, owners will realize a premium on climate control units versus not. But sometimes customers don't want to pay that premium because they don't care. They're just ordering some, some old furniture or whatever, some seasonal gear and they don't care if it's climate controlled or not. They just want to they just want the cheaper rate.
Mike Stohler
Sure. Now, how do you compete with you see some of the big names out there? What is your goal within the funds? Is it to compete with these REITs? Or is it to build up a portfolio and then possibly sell to them? You know, what is? What do you think? And how do you compete with these big names?
Jacob Venderslice
Well, we, we self manage our portfolio. And we used to outsource our management with the REITs. And the REITs know what they're doing. There. They've got an amazing marketing machine and amazing brand presence, and they're just widely known. But we found over time that in general, third parties don't care about your deal as much as you do, no matter how good they are. They are not watching the numbers, like an owner watches the numbers. And there's a number of ancillary revenue streams that the REITs will keep in self storage, they do not share with the ownership side. So for example, tenant insurance, I'm sure most people listening to this podcast and they rent a car, they declined the insurance because they have it on their their Chase Sapphire card, they've got it on their auto policy. A lot of people buy that insurance though. And it's self storage. Believe it or not, self storage leases stipulate that the owner is now responsible for the customer's contents in the unit. So we'll sell them a protection plan to cover their contents up to five or $10,000 During the amount.
And we make money on that. And the REITs do the same thing. But they don't share that. So those are one of the that's kind of one of the examples that we discovered over time that yeah, there, I get an amazing brand and market presence. But our bottom line is not what it would be if we were self managing. So over time, we started taking these back from the REITs self managing them and then self managing any any acquisitions that we made since basically starting three years ago. So as far as competing with the REITs. Generally speaking, we endeavor to have a clean and safe secure storage facility at an affordable rate. And storage to a degree is a commodity. And if you have a drive up 10 by 10, that's not climate controlled for 100 bucks a month. And next door Public Storage puts up a multi storey climate control facility that a 10 by 10s 125 or 130 a month, more than likely customers are going to go with the cheaper price even though we're not climate controlled. So we generally try to compete on the revenue side of being the more affordable option against some of the competitors in the sub market.
Mike Stohler
Now, how does you've done a lot of different investments over the years? What would you say? The returns you know comparable returns on the Self Storage investment are or I would think it would be less expensive to build, because there's really not a lot of infrastructure. You're just building a lot of aluminum sheds, you know, and as far as multifamily and things like that. Are there are you seen the same type of returns that you would see like on single family or multifamily? Do you know?
Jacob Venderslice
Yeah, I would say our cash on cash yield on a current basis is likely higher than multifamily, especially in today's environment. And self storage has been one of the Darling asset classes the last couple of years, along with along with industrial and multifamily, those have been kind of really hot. And we've seen cap rates drive down, especially over the last 18 months and self storage, which of course, means values have gone up. So in terms of the value of our portfolio, we think it's gone up substantially, but we are not sellers on any of our assets anytime soon. We're more, we're more focused on dividend yield. But based on our portfolio's performance, I think that our cash on cash return is higher than multifamily might be or industrial. But I think cap rates in multifamily industrial is probably compressed downward a little bit further than self storage. So it just kind of depends on what your business plan is, do you want to sell anytime soon, if you're not as worried about yield and work more concentrated on appreciation and short term upside of multifamily might be a better place to be. But if you're focused on an above market, cash on cash return, and a longer term holding self storage is is a better option.
Mike Stohler Have you thought about or maybe you do this? I see a lot of self storage and get your opinion on if it's worth it. You see, sometimes they're tied to a U haul. And they do the pods or they do that type of storage. Or some of them have, you know, kind of the hot thing that I'm seeing in the storage business right now is RV storage. Because everyone on the brother because of COVID bought an RV. Have you thought about or looked into kind of doing an RV storage with the Self Storage or U haul with the you know, are you kind of multi?
Jacob Venderslice
Yeah, we are it's all about revenue and a number of our facilities around the country have built an RV storage as well as U haul or Penske trucks. The bone RV storage is interesting, because if you have excess land and a storage facility, you may not build storage on that anytime soon. But it's very inexpensive to repurpose that land for vehicle parking. And it's almost like free revenue, we have a deal in North Carolina, we spent I think $80,000 building a boat and RV parking lot on land we already owned, and our gross potential rent on that $80,000 investment is like 50. And I think our current employees revenue is about 30,000 a year. So it's a really good ROI. On the U haul side, you all's interesting because I can definitely augment your top line revenue. Operationally, it can be challenging because you need a good customer service person they're leasing trucks turning trucks over? Well, we have one deal that we're probably grossing about $40,000 a year and Ohio doing U haul rentals. So from a cash flow perspective, doing truck rentals makes sense. But from a value creation perspective, you may not eventually sell that deal. And get credit from a cap rate basis on that income stream. And the same way you would get credit for the income stream from your self storage and your boat RV parking.
Mike Stohler
Yeah, that makes sense. And another thing that I really like, because I'm dealing with it in the hotel space is there's not a lot of need for employees at self storage, you know, it's, for me, it's like my God, you know, just trying to hire and retain people for the hotels. It's just, it's killing me. But what I really like about self storage is you can, there's a lot of automation.
Jacob Venderslice
There is there is we have we have a blend we have, we have some deals that are staffed full time with a traditional onsite manager. We have some deals that have no full time on site manager just kind of depends on the deal type. But that being said, you still need boots on the ground, you still need people there for customer service issues, a gate system goes down to theft, which happens occasionally. Really any bad things that happen you need. You need a full time w two person in that market to go address it. But yeah, our expense load on the payroll side is certainly lighter than hospitality would be, of course, but it may seem like a stretch. I don't I don't think I think there are a number of similarities between hospitality and self storage. One of them is they're both very operationally intensive. So we are, we're a self storage operator and manager before we're a real estate investment company, the operations are critical.
And that's so much of our value creation strategy is growing noi over time retaining occupancy. So that's kind of one similarity. And the second one, which is thing interesting is like hospitality. Our revenue is very dynamic. So we're not doing you know, one night leases, like you are in hospitality. But our leases are month to month. So in our business, just like hospitality, we have many, many customers moving in and moving out, or in your case, checking in and checking out every day and every month, and our revenue streams change by the season, right, based on where your hotel deals are. Summer occupancies might be higher, because people are on vacation, and they're traveling. Same thing and self storage. People are off school, they're there maybe making a move during the summer, because the kids aren't going to school, they need a storage solution for six months or a year. So they're not that dissimilar in terms of the operations and the very dynamic revenue management. Both are operationally intensive, and revenue changes by the day.
Mike Stohler
Yeah, yeah, that makes a lot of sense. And yeah, it's just man, it kind of makes me want to maybe building an RV self storage unit instead of going after another hotel project,
Jacob Venderslice
as they say. wait to have someone sleeping in a unit overnight that shouldn't be then you're back into hospitality, I guess. Someone breaking into the neighbor's unit and stealing their stuff. Creating wealth and real estate is never easy.
Mike Stohler
No, it's not. But it is worth it. Everyone it is worth it. It is it is so let's talk about how people can invest with you know, what is talking about, you know, diversifying into self storage. Talk about your storage fund, how you can scale, you know, all of our portfolios, talk a little bit about what you're doing your your one is coming up.
Jacob Venderslice
Yeah. If you want to get involved in self storage, there's really two ways to do it. Actually, there's three ways. One way is you go out and buy a storage deal and or build one and figure out how to operate it and hiring manager and get your call center. You know, going that's that's not a bad strategy, if you're committed to it, and you want to spend the time actually building your portfolio up. Another way is to buy stock in a REIT. Right, you buy some extra space, you buy some cubesmart. The advantage to buying stock in a REIT is liquidity. So you get your money out quickly if you need to. And the other way is to invest in a private syndicate syndication or fund with someone like us or somebody else. One of the advantages to investing in a private syndication or fund in the storage space is you're getting most of the upside, and not doing any work, you have exposure to the asset class.
And you also are enjoying the benefits of depreciation that come along with real estate. And you're not getting that in a REIT, you would if you built your own deal, obviously, it'd be all yours. But private investing is a great vehicle to kind of get exposure to an asset class that you may want to have a piece of you don't want to go out and execute it on your own. There's a lot of good operators out there and they were good operator. Another good group is called reliant, reliant investments. They're based out of Atlanta. number of groups like us kind of do a similar thing. They launched bonds and syndications and raise capital from investors and pay distributions and you know, collectively, as a partnership, create wealth together.
Mike Stohler
Out there different ways that you can invest. And you know, we've spoken about this a little bit in the past. Using your self directed IRA, is something that a lot of people don't think about. They have this big IRA is just sitting there, it's just sitting in the market. How can they take that and invest it in real estate?
Jacob Venderslice
Yeah, we have a we have a millions of dollars in self directed IRA capital in our funds and syndications. And there are some disadvantages to it and advantages. One of the disadvantages to investing with an IRA is you're not you're not enjoying the benefits of the depreciation as much as you would be with cash. But when an if there's a big gain and big liquidity events, that that is tax free, which is very interesting. We were touching on this before we started recording, but the government was threatening to eliminate the ability for investors to invest in private placements with their retirement accounts.
And not only were they going to eliminate that on a look forward basis, they were going to make it retroactive. So if you invested it with your IRA and one of our funds, for example, a year or two ago, and it's a fun it's going to last for seven years say the government suddenly is saying okay, if you don't get your money out of this bill liquid fund within two years your retirement account is going to be penalized and taxed. Which is astounding to me. My understanding is that this did not make it into the package. And for right now, it's not going to be an issue. But let's hope that doesn't pop back up in the future, because that would be, that would be very unfortunate. And I think, frankly, unfair.
Mike Stohler
It would it would be apps government does what it wants. Well, it does. And, you know, a lot of times they don't think about the repercussions, and the repercussions of all the small businesses, all of us small entrepreneurs that rely on that. And that just the devastating effect that it's going to have on on all of us making a living. But yeah, I mean, that's a whole other conversation.
Jacob Venderslice
It certainly is. Yes.
Mike Stohler
So, Jacob, How can everyone get a hold of you? How can they find you?
Jacob Venderslice
Well, they can go to our website, which is van West partners.com. They can also email me at Jacob at Van West partners.com Or hit me on LinkedIn, Jacob Vanderslice, and you know whether they have interest in working with us or not, we're always open to talking shop about real estate and kind of offering guidance on where to park your capital, what we see in the market risks, downsides. Always happy to connect with folks.
Mike Stohler
Wonderful. Well, thank you, Jacob. And everybody. It is Vanderslice V A n d e r s L I C E. Thank you, Jacob. I appreciate you coming on.
Thanks for tuning in to the Richard geek podcast, where we're helping others find creative ways to build wealth and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www. V richer kake.com/podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. Share with others who can benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you and thanks for listening
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ABOUT JACOB VENDERSLICE
Jacob Vanderslice is Principal at VanWest Partners, a Denver-based real estate investment firm focusing on the acquisition and management of self-storage centers and another opportunistic real estate throughout the United States. By focusing on this conservative and growing real estate sector, VanWest has established a track record with over $195mm in real estate assets. A commitment drives Jacob and his partners’ success to deliver an expertly-executed, adaptable strategy with an institutional investment approach.
The diverse background of VanWest’s principals allows the company to look at investments outside the traditional, single focus strategy of many companies. Uncovering value when the value is not obvious allows Jacob and his team to maximize investment performance to their stakeholders. Jacob is passionate about educating investors about self-storage, urban infill repositioning, redevelopment of distressed commercial assets, and other untraditional investment opportunities. He focuses on investments driven by data and reveals and maximizes opportunities to make a positive and lasting impact in the lives of his clients and investors.